TOKYO, Oct 5 (Reuters) - The Bank of Japan is expected to keep monetary policy unchanged on Friday despite growing signs that sagging exports to China and Europe may tip the economy into recession, preferring to hold fire for now as it reviews the effect of stimulus announced last month.

But the central bank is likely to warn of heightening risks to the economic outlook at the end of a two-day meeting, keeping alive expectations of further policy loosening at a more important rate review on Oct. 30.

It is also expected to cut its long-term growth forecasts at the Oct. 30 review, and admit that Japan remains years away from achieving the central bank's 1 percent inflation target.

Mounting political pressure is keeping the BOJ on edge.

New Economics Minister Seiji Maehara, a vocal advocate of more aggressive monetary easing who assumed the post in this week, is expected to attend the meeting on Friday and call for bolder action to beat deflation.

"Recent economic indicators have been weak, but not weak enough for the BOJ to ease again now. Maehara's presence at the meeting also won't nudge it into immediate action," said Izuru Kato, chief economist at Totan Research in Tokyo.

"But politically, the central bank is in a tight spot. It may loosen policy on Oct. 30 to show its determination to achieve its 1 percent inflation target," he said.

The nine-member board is seen debating risks to the outlook this week, such as how anti-Japan protests in China over a territorial row could affect trade between the nations and corporate business plans.

But it is expected to hold off on easing policy through an increase in its asset buying and loan programme, after having expanded stimulus just last month on fears that weak exports and output are diminishing prospects of a near-term recovery.

Japan's economy has so far outperformed most of its peers in the Group of Seven on spending for rebuilding from last year's earthquake and tsunami. But with that effect fading, domestic demand may not make up for falling exports for too long.

Data released since September's meeting has continued to disappoint. Output fell to a 15-month low in August on sagging sales to top export market China and business sentiment soured in the three months to September, fuelling concerns that the world's third-largest economy has stalled and may slip into recession.

BOJ officials have signalled their readiness to act again should the economy underperform despite September's easing, or if risks heighten enough to threaten Japan's recovery.

Governor Masaaki Shirakawa may reinforce that message in his post-meeting news conference and warn of risks to growth that may delay a clear end to deflation.

The BOJ is set to cut its economic and price forecasts, and signal a delay in achieving its 1 percent inflation target in a twice-yearly report to be issued on Oct. 30, sources familiar with its thinking say. That will keep it vulnerable to calls for further stimulus from government officials like Maehara.

Two government representatives, one from the finance ministry and another from the Cabinet Office, which Maehara heads, can attend the BOJ's policy meetings. They cannot vote but may express views and propose a request in vote on policy.

It is rare for cabinet ministers to attend the meetings themselves instead of sending their subordinates.